CHICAGO – A St. Louis redevelopment agency heads into the market as soon as this week with a $108 million issue to fund land and site costs supporting a new $1.75 billion facility for the National Geospatial-Intelligence Agency.
The financing will fund land acquisition, demolition, and infrastructure improvements so the city can hand over a site that meets the standards laid out by the federal spy agency.
The proceeds will also refinance short-term lines that paid for initial work.
The St. Louis Land Clearance Redevelopment Authority will sell the unrated annual appropriation redevelopment revenue bonds as soon as Wednesday depending on the receipt of a final letter of approval tied to land acquisition from the federal government, officials said.
Stifel is the underwriter. Gilmore & Bell PC and White Coleman & Associates LLC are co-bond counsel. Under a city and state financing agreement, both are providing funds to repay the bonds subject to appropriation.
"This project has been a top priority at the city and state level. It will keep a lot of jobs here and involved the cooperation of the city and state working with the federal government," said Peter Czajkowski, lead banker on the deal and head of Stifel's public finance group.
The new 99-acre site northwest of downtown will replace the location downtown near the Anheuser Busch Brewery it has occupied since 1952. The city is hoping it will serve as anchor to bolster development in the north city area.
The city and state will tap tax revenue generated by the NGA's existing employees to repay the bonds. Employees currently generate about $7.7 billion annually in income taxes that flow to the state and $2.6 million from the citywide earnings tax on employees that goes to city coffers.
The city pledges up to $1.5 million of earnings taxes. The project is also located in a tax-increment financing district so the city can tap TIF generated revenues also. The state will contribute $2.9 million in 2017 and then $5.8 million annually.
Debt service runs at about $6.8 million annually through most of the anticipated maturity schedule. The council and state legislature have approved the first year's appropriations.
The bonds are structured to mature serially between 2018 and 2026 with much of the paper being offered in term bonds tentatively maturing in 2032, 2042, and 2046. The bonds are payable only from pledged revenues. A $6.8 million debt service reserve is funded.
The financing package to cover the costs of site acquisition also benefits from an additional $33 million in Brownfield tax credit sale proceeds. Bondholder risks outlined in the offering documents include the need for an annual appropriation and the need for voter renewal of the earnings tax every five years – a fact highlighted in bold print in the offering statement.
Voters overwhelmingly renewed the tax in 2011 and 2016. If rejected, the tax would be phased out over 10 years.
If the 1% tax on earnings is phased out while the bonds are outstanding, the authority would request the city make the payment from other available funds. If the city does not make up the revenues, the state is no longer obligated on NGA revenues.
"If the city does not request, or the board of aldermen does not approve such other available revenue appropriations, the impact on the availability of funds for payment of debt service on the 2016 bond payments could be significant," the offering statement warns.
Federal appropriation and project risk should the federal government opt not to proceed also pose a risk for investors. The government appropriated $36.8 million in fiscal 2017 for the project and $27 million in fiscal 2016.
Czajkowski said the finance team opted against seeking a rating due to the nature of the project and multiple layers of government.
The project is considered non-essential and involves a city and state appropriation so it's unclear just how far a rating would be notched of the city or state's credits. Missouri is rated AAA and city rated in the A category.
"It's just not a standard appropriation credit or one that fits into a structured lease agreement analysis," Czajkowski said. As the firm fields investor questions about the structure and security, he added that he doesn't expect the lack of rating to dent investor interest. It's expected the bonds will go predominantly to institutional investors, he added.
The NGA serves as the county's primary source of geospatial intelligence for the Department of Defense and the U.S. intelligence community, according to its website. NGA provides geographic data to aid in national security, intelligence, and defense, as well as disaster relief. Geospatial intelligence is the exploitation and analysis of imagery and information that describes, assesses and visually depicts physical features and geographically referenced activities on the Earth.
The deal's completion will mark the culmination of several years of work that helped the city land the project, protecting the 3,000 existing jobs housed at the NGA's existing St. Louis West Campus headquarters.
The NGA announced its intention to move its West facility to an expanded location several years ago after concluding a new facility offered a better option over expanding its current home.
That put the city and state to work on how best to land the site. The city worked with the Missouri Department of Economic Development and business and civic groups to identify a site and acquire properties. Work also then began on a financing scheme so the city could transfer a city- and state-funded site at no cost to the federal government that made the proposal more competitive.
State lawmakers passed legislation last year that enabled the development of the site which Gov. Jay Nixon called a "transformational investment in the region's future." The city was also helped in its effort with work by local universities. Both the city council and state lawmakers approved legislation paving the way for the financing agreement.
The city beat out two other sites in St. Louis County and one in Illinois.
"The St. Louis City site provides NGA with the most technological, academic and professional environment for this agency to develop the capabilities and solutions necessary to solve the hardest intelligence and national security problems entrusted to us by the American people," NGA director Robert Cardillo said of the city's preliminary selection in March. The decision was finalized in June.
Construction is expected to begin in 2018. The Army Corps of Engineers will manage construction. The agency's main headquarters is in Springfield, Va., just outside of Washington, D.C. It employs approximately 14,500.